Executive Compensation in Japan

Executive Compensation in Japan from Tax Records, April 29, 2011
We have two papers on this subject. Abstracts and links are below.

Executive Compensation in Japan: Estimating Levels and Determinants from Tax Records (forthcoming, Journal of Economics and Management Strategy,Volume 20, Number 3)
Minoru Nakazato, J. Mark Ramseyer & Eric B. Rasmusen

Abstract: Most studies of executive compensation have data on pay, but not on total income. Studies of executives in Japan do not even have good data on pay. Although we too lack direct data on Japanese salaries, from income tax filings we compile data on total executive incomes, and from financial records obtain some indication of which executives have substantial investment income. We find that Japanese executives earn far less than U.S. executives -- holding firm size constant, about one-third the pay of their U.S. peers. Using tobit regression analysis, we further confirm that executive pay in Japan depends on firm size, with an elasticity of .24, but not on accounting profitability or stock returns. Corporate governance variables such as board composition have little or no effect on executive compensation, except that firms with large lead shareholders do appear to pay less.

The paper is available in Latex and pdf.

A dataset in Stata 9 format will at some point be here. An incomplete key is here.

We have the Stata Do files for Tables 6 and 7and 8and 9and 10.

We have the Stata Log files for Tables 6 and 7and 8and 9and 10.

"Public and Private Firm Compensation Compared: Evidence from Japanese Tax Returns"(Published: Korean Economic Review, 25(1): 5--34 (Summer 2009)) is available in MS-Word or pdf.

Minoru Nakazato, J. Mark Ramseyer & Eric B. Rasmusen

Most studies of executive compensation focus on publicly traded companies. The high levels of compensation in public companies are often attributed to agency slack arising from ownership by diffused shareholders. If so, pay at private companies, more closely held, should be lower. Governments in the United States and elsewhere do not require private companies to disclose the pay of their executives, but until 2004 the tax office of Japan published the name and tax liability of any individual paying over some $100,000 in tax. We match this tax data with executive rosters of about 1,400 public and 4,100 private corporations. We find that public and private company presidents have similar incomes. Incomes rise with company size and profitability in both, but incomes are more sensitive to profitability at public firms. In Japan, at least, public firms pay their presidents no more than private firms do, and they tie that compensation more closely to observable performance benchmarks, not less.

Minoru Nakazato Univ. Tokyo Law Faculty Bunkyo-ku, Tokyo [email protected]

J. Mark Ramseyer Harvard Law School Cambridge, MA 02138 [email protected]

Eric B. Rasmusen Kelley School of Business Bloomington, IN 47405 [email protected]

URL: http://www.rasmusen.org/papers/exec/exec.htm. Indiana University, Department of Business Economics and Public Policy, in the Kelley School of Business , BU 456, 1309 East Tenth Street, Bloomington, Indiana 47405-1701, (812)855-9219. Comments: Erasmuse@ Indiana.edu.